British budget deficit means fewer 'pre-election bribes' 

The figures served as a reminder of the fragility of the so-called fiscal headroom which Rishi Sunak (left) hopes will allow for more tax cuts ahead of elections expected next year. Headroom refers to the margin by which Britain's finance minister Jeremy Hunt can expand fiscal policy.

The budget picture for British prime minister Rishi Sunak has deteriorated, official data showed, but a smaller debt interest bill thanks to slowing inflation could yet restore some of his limited room for pre-election tax cuts.

Public sector net borrowing, excluding State-owned banks, totalled £116.4bn in the financial year so far, £24.4bn (€28bn) higher than in the April-November period a year earlier, the UK Office for National Statistics said.

In November alone, the deficit of £14.3bn was bigger than expected. Britain's statistics office revised up borrowing for each of the previous seven months by £3.7bn in total.

British borrowing has surged in recent years, first as the government supported the economy during the pandemic and then as it provided massive aid to households and businesses to offset the surge in energy prices in 2022.

The figures served as a reminder of the fragility of the so-called fiscal headroom which Mr Sunak hopes will allow for more tax cuts ahead of elections expected next year. Opinion polls show his Conservative Party lagging far behind the opposition Labour Party.

Headroom refers to the margin by which Britain's finance minister Jeremy Hunt can expand fiscal policy—through tax cuts or spending increases—before running into rules that are designed to keep borrowing and debt in check.

Britain's budget watchdog, the Office for Budget Responsibility, estimated that headroom at £13bn in November when Mr Hunt gave tax cuts to workers and businesses and tightened a squeeze on already stretched public services in the years ahead in order to pay for them.

But cooling British inflation—which dropped last month to the lowest annual rate since September 2021 at 3.9%—is likely to increase the amount of headroom for Mr Hunt by lowering Britain's debt interest bill in the coming months.

Samuel Tombs, an economist with Pantheon Macroeconomics, said Hunt might see his room for manoeuvre to cut taxes or raise spending almost double to about £25bn by the time of his annual budget statement due in early 2024.

"Nonetheless, we think that the chancellor will be relatively restrained with pre-election bribes," Mr Tombs said, noting how bond prices fell shortly after the announcement of his tax cuts in November.

The government's interest rate bill, while still high by historical standards, fell by 15% to £61bn in the April-November period as price growth slowed, easing the hit to the government from its inflation-linked bonds. 

Reuters